The Economist Has Never Heard of the Bureau of Labor Statistics

“Carefully pruned,” eh? I sure hope The Economist doesn’t imply that the ABA maintains an artificial attorney shortage through the law school accreditation system operated by the Section of Legal Education, which operates independently from the ABA. Otherwise I’ll have to link to the Bureau of Labor Statistics again and repost that graph comparing the number of JD-holders, active and resident attorneys, and employed attorneys.

The editorial praises the arguments from the authors of last week’s Wall Street Journal editorial, “Time to Deregulate the Practice of Law,” by Brookings Institute fellows Clifford Winston and Robert Crandall, who wrote a book with University of Houston economics professor Vikram Maheshri on the subject. The Economist summarizes:

[B]arriers to entry have kept the number of lawyers artificially low for decades. This—combined with an economy over-regulated by lawyers who go on to politics—results in an unearned premium on legal wages.

Apparently, lawyers now co-opt the system by subverting legislatures into passing laws that benefit themselves. Truly nefarious indeed. Okay, there is a grain of truth to this: state legislatures will listen to bar authorities before masses of poor people, but casting normally hapless bar associations as organized crime syndicates is silly.

I don’t like to be utterly dismissive of writings on the legal profession I disagree with, so to The Economist’s credit, the editorial does a far better job organizing the entry barriers than Winston’s and Crandall’s Wall Street Journal editorial did. They are: (1) The ABA’s accreditation authority (with mention of California’s deregulated system), (2) bar exams, and (3) barriers to ownership and management of law firms, and the practice of law by nonlawyers.

(1) The ABA’s accreditation authority

As I wrote before, for the ABA’s accreditation authority to result in “an unearned premium on legal wages,” the costs of legal education must be transferred to grudging clients. I’ve seen no direct evidence this is the case, and indeed if purchasers of legal services believed it and wanted them cheaper, they’d pressure law schools to cut tuition or hire JD-holders from cheaper law schools. Mentioning the California system prompts the question: Why aren’t California firms conducting OCI at The People’s Law School instead of Stanford? Why isn’t the national market for legal services shifting resources to California to take advantage of its cheaper degrees? Why aren’t Massachusetts firms paying its paralegals to attend ABA-renegade Massachusetts School of Law instead of slobbering over Harvard or BU grads?

The obvious answer is that firms are risk averse, valuing credentials over their cost. They’re cautious because their clients are. If clients believed they were overpaying for private school law grads, they’d demand firms hire from public schools, or they’d stop paying new associates’ exorbitant salaries. Oh wait, they’ve been claiming to do just that. If the legal labor market were this cartelized, no one would care about U.S. News’ rankings, and grads would have jobs at graduation, even in a period of high unemployment.

(2) Bar Exams

The second hurdle for a would-be lawyer is the bar exam itself. Proponents say it acts as a useful quality control. Opponents say it is a gruelling but useless ritual … Today students pay thousands of dollars to study for their bar exams, even after they have finished law school … Mr Winston says that oversight would be a much better method than restrictions on supply. Many clever people are bad at taking tests, or are not able to spend $150,000 on law school.

Useless exams indeed! Again, proponents of deregulation must show that the bar exam’s costs are shifted to legal services consumers. In fact, some firms do pay for their associates’ bar prep courses, except here’s the thing: those courses wholly optional. Case in point: me. I passed the New York bar (on the first try even) without taking a bar prep course. There’s no regulation that requires law grads to pay off BarBri or Kaplan. If this were the case, we’d be discussing deregulating bar prep, not the bar exam itself. Also, if bar exams were so costly, why haven’t firms moved to Wisconsin and plucked up the UW and Marquette grads who receive diploma privilege in lieu of taking the state bar exam? At all times, consumers of legal services have been free to demand that they not pay for bar prep courses or go to firms that don’t engage in that practice.

As to “restrictions on supply,” neither Winston nor The Economist provide any evidence of an attorney shortage. We can answer this by—*sigh*—looking at Bureau of Labor Statistics data. Well, there’s your link, so here’s the graph too.

To The Economist, this is a “carefully pruned” profession that restricts the supply of practitioners. The idea that growth has been stagnant for decades is out of the question.

(3) Barriers to ownership, management, and practice of nonlawyers in law firms

Messrs Winston, Crandall and Maheshri think that—in a more sensible world—banks, consultancies, accountancies and others could hire lawyers and offer a full range of services, including legal ones. And those without the bar exam or law school under their belt could still, with training and experience, dispense routine guidance and offer legal services, such as drafting wills and arranging simple divorces, to poorer clients. Doing so today risks getting a false “lawyer” sent to prison.

Defenders of the legal labor cartel point out that in The Economist’s “more sensible world,” restriction on practice are designed to protect clients, especially from conflicts of interest. The bar believes that lawyers should be loyal to clients and not to banks or consultancies that pays their salaries. Personally, I think the bar makes this argument in good faith, not that law firms’ interests and clients’ don’t come into conflict over things like hourly billing rates. Additionally, states criminalize unlicensed law practice because “lawyers” take clients’ money without performing any services, i.e. they’re con artists. Now, these laws may be redundant to criminal fraud statutes, but they don’t come about because bar authority gangsters want to imprison people who muscle their turf. Rather, they’re trying to protect immigrants who don’t speak any English from getting scammed. Hopefully, Winston, Crandall, and Maheshri’s book discusses professional ethics and the ramifications of malpractice by nonprofessionals beyond “oversight.”

As to the latter half of the claim—that JD-holders who didn’t pass the bar should still be able to practice limited law—I think the solution is to either do away with the exam entirely or come up with a better bar exam and certify lawyers along practice lines. Winston is right that bar exams test too much and unnecessary material, demonstrating that passers are good at memorization and taking long tests. If criminal lawyers had to take a criminal law bar, civil litigators a civil law bar, patent lawyers a patent bar (oh wait, they already do), etc., it’d be an easier test that’s more relevant to what lawyers do. It would also require less doctrinal legal education than exists today.

In 2000 the average American law-firm lawyer made $191,000. Exactly comparable numbers are scarce, but the average salary for all lawyers in Canada in 2002 was just $64,000; in Australia in 2000 it was $90,000. American lawyers are clearly reaping some kind of premium.

Oh God. First, does their definition of “law-firm lawyer” include solo practitioners? Does their average account for the multi-modal salary distribution? Also, Canada and Australia have far more tightly regulated legal professions than the U.S. does, where graduates must complete articling positions to obtain a license. Articling remarkably restricts entry into the profession, and there’s even a shortage of positions in Canada. Law schools can calibrate their enrollments to ensure there isn’t an attorney surplus. Why is it that the more highly regulated systems produce lower attorney salaries than the less deregulated ones?

I should remind readers that The Law School Tuition Bubble’s official position is that the barriers to legal labor market entry are simultaneously too low and too high in the wrong ways. Too low in that the bloated legal education system enrolls far more students than are necessary to serve the economy, and too high by taking much too long, overcharging them, and providing them with an overgeneralized education irrelevant to 21st century practice. Specializing the profession along practice lines would do a lot of good towards improving service. However, it won’t make a $399 uncontested divorce or contingency fee case any cheaper. The high costs of legal services are due less to ABA accreditation requirements and more to hourly billing practices, poor price signaling, and risk aversion by purchasers of legal services.

To conclude, I still think Winston, Crandall, and Maheshri are shock doctrining the legal profession by using the legal education system’s failings to further an ideological deregulation agenda. Cementing that opinion is how the American Medical Association and the American Dental Association do promote a shortage of doctors and dentists in even worse ways than Winston, Crandall, and Maheshri accuse the ABA. The hordes of ABA Journal readers have a point:

Lawyers promptly filled the American Bar Association’s website with sarcastic comments about the study, musing about extending their practices into surgery and mortgage lending.

Why is The Economist so excited to deregulate legal services before other professions? Probably because it’s isolated and unpopular, not because its rent-seeking is significantly more egregious than other professions’.

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The greatest barrier to non-lawyers practicing law is not mentioned anywhere in the Winston, Crandall & Maheshri article, i.e. the comparitively higher insurance premiums that underwriters will charge to the non-lawyers, if even available. The premiums will be significantly higher than legally-trained lawyers given the greater risk of non-lawyers committing malpractice. The premiums will be part of the overhead that non-lawyers will have to recoup from their clients from fees.

Or does the de-regulation that WC&M are advocating include states rescinding the requirement that law practioners carry malpractice insurance? If this is indeed the case, then such de-regulation will significantly harm just the clientele that Messrs. WC&M believe would be assisted by deregulation.